Disability Insurance program: worker experience

SOCIAL SECURITY
DISABILITY INSURANCE PROGRAM
WORKER EXPERIENCE

ACTUARIAL STUDY NO. 114

by Tim Zayatz, A.S.A.

The reasons for termination of DI benefits for disabled workers can be grouped into four main categories:

Generally, the final month of entitlement to disability benefits for a worker is the earliest of the following:

The law contains several provisions for individuals who wish to return to work, but continue to have a disabling impairment:

The trial work period (TWP) is a 9-month period--not necessarily consecutive--during which an entitled beneficiary may work without affecting the right to benefits. Earnings during the 9 months are not counted toward SGA, and benefits will continue as long as the beneficiary has not medically recovered.

Individuals who continue to have a disabling impairment following the 9-month TWP, receive an extended period of eligibility (EPE). Earnings during the EPE are counted toward SGA, and monthly benefits will not be paid when such earnings exceed the SGA limit. If earnings fall below the SGA limit anytime during the EPE, benefits are automatically reinstated. Effective January 1, 1988, the law was amended to lengthen the EPE from 15 months to 36 months for individuals entitled to benefits in January 1988 or later.

After 24 months of disability entitlement, a beneficiary becomes eligible for Medicare coverage (regardless of age). Coverage will continue as long as the individual remains entitled. In the case of an individual engaging in SGA, coverage will extend throughout the TWP and the EPE.

Special provisions are extended to individuals experiencing multiple periods of disability. Individuals who become re-entitled to benefits within 5 years of the end of a previous period of disability are not required to satisfy the 5-month waiting period. In addition, the 24-month waiting period for Medicare coverage need not be consecutive months and time may accrue over multiple periods of disability.

Beginning at age 62, a disabled worker may elect to receive old-age benefits in lieu of disability benefits. Conversion to old-age benefits--payable under the Old-Age and Survivors Insurance (OASI) program-- occurs automatically upon attainment of normal retirement age. Roughly 85 percent of conversions take place at this age. The personal decision to convert prior to age 65 may be influenced by many factors. One of the most common reasons is the existence of benefits payable outside the DI program. For example, worker's compensation benefits may partially or totally offset a DI disability benefit, but would not affect an OASI benefit. Another common economic factor is the difference in maximum family benefits payable under the DI program, which may be lower than the maximum payable under the OASI program. Personal factors may also influence the decision to convert, including the beneficiary's own health assessment and outlook of life expectancy. In any event, it is unclear whether the individuals who switch to the OASI rolls are any more or any less likely to die or recover in the short term than those who remain on the DI rolls. Since this study observes only the activity of the DI rolls, it is not clear whether the decrement rates presented in the tables that follow are in any way biased for attained ages 62-64. The reader is referred to the appendix for details.

Disability recovery may occur when the beneficiary either notifies SSA of an improved disabling condition, demonstrates the ability to engage in SGA, or is judged to no longer meet the definition of disability. The DDS or the central office will conduct a continuing disability review (CDR) from time to time based on warranting situations such as:

It is worth noting that certain "outside" variables can significantly influence the rate of recovery. Current disability caseloads, backlogs, budget restrictions, and legislation, all affect the level of CDR activity and, consequently, the rate of recovery. To a lesser extent, mortality rates are also affected by exogenous variables. For example, the elimination of drug and alcohol related impairments, and an increase in allowance based on vocational factors or mental impairments may lead to an improvement in the overall mortality profile of the disability rolls.

Many variables can affect the rate at which beneficiaries are terminated from the DI rolls, including:

The Social Security Amendments of 1965 (Public Law 89-97) modified the definition of disability by replacing the requirement of permanent disability with the expectation that the disability last at least 12 months. This led to the entitlement of less seriously impaired claimants and lower mortality rates among the disabled. The 1967 amendments eased the insured status requirements for claimants under age 31. A growing portion of younger and relatively healthier beneficiaries further contributed to the decline in the mortality rates of the DI rolls.

As mortality rates fell in the early years of the program, the gross recovery rate generally increased. With the introduction of government-funded rehabilitation programs, elimination of the "permanently disabled" condition, and the extension of benefits to younger claimants, the recovery rate among beneficiaries rose from 19 per thousand in 1965 to 32 per thousand by 1967. Thereafter, the gross recovery rate decreased rapidly through 1975. This was due in large part to changes in the administration of the program. With the introduction of the Black Lung and SSI programs in the early 1970s, workload pressures resulted in the suspension or curtailment of some administrative review procedures. For example, by 1972 the central office reviewed only 10 percent of DDS continuances in which medical recovery was expected. Previously, 100 percent of such continuances were reviewed. By 1976, the gross recovery rate began to increase again as central office review of continuances returned to 100 percent.

Throughout the 1970s, the DI program experienced substantial increases in cost, mainly the result of significant growth in incidence. Under then-current policy, reviews were performed only in those cases where the beneficiary's condition was expected to improve, or voluntary reports or posted earnings indicated work activity. However, by the late 1970s measures to curtail inaccurate award determinations and improve the review process were intensified. One significant provision of the 1980 amendments required that beneficiaries with non-permanent impairments be reviewed every 3 years, and permanently disabled beneficiaries be reviewed at intervals determined by the Commissioner. Using that legislative mandate, the Reagan Administration initiated a major review of the disability rolls that resulted in a large number of cases in which it was determined that recovery had occurred.

Ensuing public disapproval of the newly implemented review process led to a moratorium on reviews of all cases of mental impairment disability. ¹² Revision of mental impairment criteria and the review process followed and more than half of those removed from the rolls were reinstated upon appeal. The result was a sharp drop in recoveries as well as a sharp increase in new awards throughout the remainder of the 1980s.

In the latter part of the 1980s, the agency experienced reductions in both work force and administrative funding. By the early 1990s, there existed a shortage of personnel needed to handle a significant increase in claims, as well as to meet review schedules. In an effort to free up resources to process initial claims, the agency sharply curbed the review of existing beneficiaries. Beginning in 1994, growth in initial claims began to level-off and once again attention shifted to performing mandated reviews. Congress enacted the Contract With America Advancement Act of 1996 (Public Law 104-121), which included a provision authorizing the appropriation of special funds to be used exclusively to conduct additional CDRs. As a result, an expanded plan was developed to work down the existing CDR backlog by 2002, and stay up-to-date with CDRs maturing thereafter.

Table 5 shows the historical number of terminations and gross termination rates for disabled workers, by reason for decrement. Most terminations occur as a result of death or conversion. Recovery is the most volatile termination category, being subject to many outside variables as previously mentioned. The spike in recoveries in 1997 is a result of the provision of Public Law 104-121 to eliminate drug addicts and alcoholics from the DI rolls. "Other" is a relatively small category mostly comprised of individuals who switch to old-age benefits prior to normal retirement age. Termination categories are depicted in figure 3.

As mentioned, death and conversion account for most of the terminations that occur, and the general trend in termination rates has been a declining one. Figure 4 shows the total termination rates for disabled workers. Two significant trends in the DI rolls have developed over the years which help explain the decline: falling death rates and a reduction in the average age of beneficiaries.

Over the period 1975-1995, the average age among disabled workers steadily declined from 53.5 years to 49.7 years for males, and from 54.4 years to 49.9 years for females. During the same time period, the fraction of 30-44 year olds on the male DI rolls roughly doubled from 14 percent to 27 percent; among females, the fraction more than doubled from roughly 11 percent to 26 percent. The increase in younger and physically healthier beneficiaries is largely attributable to the increasing proportion of new awards due to mental impairments. The result is an increasingly smaller percentage of beneficiaries converting to old-age benefits each year, as well as fewer deaths.

Figure 4.--DI Disabled Worker Termination Rates by Reason, Calendar Years 1975-1998

Although medical advancement has significantly contributed to longer life expectancies among the general population, the impact on a disabled life is less clear. Fairly consistent death rates within the DI rolls is shown for the period 1977-1993, as gross rates range between 49-54 deaths per thousand disabled males, and 34-40 deaths per thousand disabled females. A noticeable decline in the death rate after 1995, especially among males, is due in part to the rapidly diminishing impact of HIV-related impairments and the elimination of drug-addiction and alcoholism as material causes for disability. Other significant trends leading to mortality improvement within the DI rolls include: continued increases in mental impairments--especially among females; and a rising number of awards to older workers, whose determinations are based on a set of vocational factors rather than a single severe disability.

Table 7A, table 8A, and table 9A illustrate select-and-ultimate death, recovery, and total termination probabilities, respectively, for male DI disabled workers. Data is tabulated by entitlement age and duration, based on actual termination experience of the DI rolls from January 1, 1991 through December 31, 1995. Table 7B, table 8B, and
table 9B illustrate similar probabilities for females. The underlying methodology used in table construction and graduation is detailed in the appendix.

Mortality among disabled workers generally exhibits a rapid increase with select (entitlement) age. For any given select age, the highest probability of death generally occurs within the earlier durations. Death probabilities tend to level off sometime around the fifth or sixth duration for males, and the third or fourth duration for females. For older select ages, mortality is lowest at these durations before trending upward in the later durations as general demographic factors such as age of the beneficiary begin to have an increasing effect. Greater consideration given to vocational factors, especially after age 50, may cause a slight decline in mortality. In general, female disability mortality is lower than that for males as is the case in the general population. Several unique circumstances that were encountered in the data that may affect mortality estimates (such as death within the waiting period and the option to switch to old-age benefits prior to normal retirement age) are discussed in the appendix.

For a given duration, recovery among disabled workers is noticeably skewed, in that the highest probabilities are exhibited among the younger select ages. For a given select age, recoveries show a noticeable bimodal distribution; both male and female recoveries tend to peak at the first duration before declining in the second and third durations, then peak again in the fourth and fifth durations, declining thereafter. The fact that CDR schedules are based on the likelihood of medical improvement helps to explain this pattern. When improvement is expected, reviews are scheduled anywhere from 6 to 24 months following the most recent disability decision--this accounts for the first peak in recoveries. For cases in which medical improvement is possible but less likely to occur within the first 2 years, reviews are scheduled every 36 months--this accounts for the second peak. If medical improvement is not expected, reviews are scheduled every 5 to 7 years.

The select-and-ultimate life tables reflect either the probability of termination due to death only (table 10A, table 10B and table 10C), or death and recovery combined (table 11A, table 11B and table 11C). For attained ages beyond the select-and-ultimate period, probabilities are extended via blending to the general population mortality for 1995. The reader is referred to the appendix for details.

Table 12A, table 12B and table 12C show the average future lifetime of a DI disabled worker as of attained age. As with the general population, disabled females display a higher future lifetime than males. It is worth noting that within the same gender, the ratio of disability mortality to general population mortality was found to be greater among females than among males. Also, a DI beneficiary exhibits a shorter life expectancy in the first year of entitlement than in the second or third, and often fourth or fifth year of entitlement. This is due to a high mortality rate within the first several years of disability. The longer the individual remains on the rolls, the greater the chance of disability continuation or a non-death termination.

Table 13A and table 13B illustrate the average amount of time spent on the DI rolls as of the beneficiary's attained age. The expected time on the rolls for females is consistently higher than males, due in large part to lower female disability mortality. The times shown are based on the duration of disability entitlement prior to termination due to death, recovery, or attainment of age 65.

Table 14A, table 14B and table 14C illustrate the average amount of time spent on the combined OASI and DI rolls as of the beneficiary's attained age. The times shown are based on the duration of disability entitlement prior to termination due to death, recovery, or attainment of age 65, combined with the duration of old-age entitlement prior to death after attainment of age 65.

Tables 15A-18D show the present value of a stream of payments to a disabled worker by select age at entitlement for various interest rates. Annual or monthly payments of $1 payable at the beginning of the period (annuity-due) or end of the period (annuity-immediate) are made starting at entitlement. Receipt of payment is contingent upon survival to the next payment date. Note that "survival" refers to the probability of avoiding decrement, which may include not recovering as well as not dying. Payments are discounted to the beginning of entitlement using the stated annual effective interest rate and the various survivorship assumptions exhibited in the life tables. Table 15A, table 15B, table 15C, table 15D, table 16A, table 16B, table 16C and table 16D exhibit the average value of a life annuity payable until death of the disabled individual, for males and females respectively. These values are based on the survivorship experience shown in tables 10A-10C, which reflect the probability of termination due to death only. Table 17A, table 17B, table 17C, table 17D, table 18A, table 18B, table 18C and table 18D exhibit the average value of a life annuity to age 65 payable until death, recovery, or attainment of age 65 of the disabled individual, for males and females respectively. These values are based on the survivorship experience shown in tables 11A-11C, which reflect the probability of termination due to death and recovery combined.

¹⁰ Reasons for termination in this category include: beneficiary switches to old-age benefits prior to normal retirement age; withdrawal of application; or erroneous entitlement.

¹¹ Benefits may continue if the individual is currently enrolled in a vocational rehabilitation program, or has entered an extended period of eligibility.

¹² The moratorium applied to all cases on which an administrative or judicial appeal was pending on or after June 7, 1983. All persons claiming benefits based on mental impairment disability who received an unfavorable decision after March 1, 1981 were permitted to reapply within time constraints, as mandated in 1984 by Public Law 98-460.